Transactions Cost Theory influence in strategy research: A review through a bibliometric study in leading journals Rodrigo Martins Universidade do Sul de Santa Catarina Fernando Ribeiro Serra Universidade do Sul de Santa Catarina André da Silva Leite Universidade do Sul de Santa Catarina Manuel Portugal Ferreira Instituto Politécnico de Leiria Dan Li Kelley School of Business, Indiana University 2010 Working paper nº 61/2010
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Transactions Cost Theory influence in strategy research: A review through a bibliometric study in leading journals
Rodrigo Martins Universidade do Sul de Santa Catarina
Fernando Ribeiro Serra
Universidade do Sul de Santa Catarina
André da Silva Leite Universidade do Sul de Santa Catarina
Manuel Portugal Ferreira
Instituto Politécnico de Leiria
Dan Li Kelley School of Business, Indiana University
2010
Working paper nº 61/2010
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globADVANTAGE
Center of Research in International Business & Strategy
Data was organized with the software Bibexcel1 which permits us to
create the citations descriptive analysis and co-citation matrixes. The matrix
was the input for the scaloning multidimensional multivariate analysis
(EMD), with Microsoft Excel 2007 and Ucinet 6 software. Figure 1
summarizes the method used, similar to Ramos-Rodriguez & Ruiz-Navarro
(2004).
Figure 1. Citation and co-citation method
1 Available at http://www.umu.se/inforsk/Bibexcel
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Source: Adapted from Ramos-Rodriguez & Ruiz-Navarro (2004).
RESULTS
Table 2 shows the top 20 most cited articles related to the TCT. These
articles were used to build the map presented in Figure 2, that shows the
co-citation relationship.
Table 2. Top 20 most cited articles
# citations References
% citation in 217 articles
150
Williamson, O. 1985. The economic institutions of capitalism: Firms, markets, relational contracting. New York: Free Press. 69.12
108
Williamson, O. 1975. Markets and hierarchies, analysis and antitrust implications: A study in the economics of internal organization. New York: Free Press. 49.77
77
Williamson, O. 1991. Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly , 36: 269-296 35.48
60
Granovetter, M. 1985. Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 3: 481-510. 27.65
58
Klein, B., Crawford, R. & Alchian, A. 1978. Vertical integration, appropriable rents, and the competitive contracting process. Journal of Law and 26.73
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Economics, 21: 297-326.
54
Gulati, R. (1995). Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances. Academy of Management Journal, 38 (1): 85–112. 24.88
54
Coase, R. 1937. The nature of the firm. Economica, 4: 386-405. 24.88
51
Nelson, R. & Winter, S. 1982. An evolutionary theory of economic change. Cambridge, MA, Harvard University Press. 23.50
47
Walker, G. & Weber, D. 1984. A transaction cost approach to make versus buy decisions. Administrative Science Quarterly, 29: 373-391. 21.66
46
Barney, J. 1991. Firm Resources and sustained competitive advantage. Journal of Management, 17(1): 99-120. 21.20
46
Zajac, E. & Olsen, C. 1993. From transaction cost to transaction value analysis: Implications for the study of interorganizational strategies. Journal of Management Studies, 30(1): 131-145. 21.20
46
Ring, P. & Van De Ven, A. 1992. Structuring cooperative relationships between organizations. Strategic Management Journal, 13: 483-98. 21.20
46
Pfeffer, J. & Salancik, G. 1978. The external control of organizations: A resource dependence perspective. New York, NY, Harper and Row. 21.20
43
Thompson, J. 1967. Organizations in action. McGraw-Hill: New York. 19.82
42
Parkhe, A. 1993. Strategic alliance structuring: A game theoretic and transaction cost examination of interfirm cooperation. Academy of Management Journal, 36(4): 794-829. 19.35
40
Dyer, J. & Singh, H. 1998. The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23(4): 660-679. 18.43
40
Kogut, B. & Zander, U. 1992. Knowledge of the firm, combinative capabilities, and the replication of technology. Organization Science, 3: 383-397. 18.43
39
Monteverde, K. & Teece, D. 1982. Supplier switching costs and vertical integration in the automobile industry. Bell Journal of Economics, 13: 206-213. 17.97
38
Alchian, A. & Demsetz, H. 1972. Production, information costs, and economic organization. American Economic Review, 62: 777-795. 17.51
38 Porter, M. 1980. Competitive strategy:
Techniques for analyzing industries and 17.51
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competitors. New York, Free Press.
The co-citation map is shown in figure 2 where the lines connecting
authors reflect the co-citations. This graphical analysis clearly illustrates the
structure of intellectual union between authors. It is apparent that three of
Oliver Williamson’s works - Williamson, 1975, 1981 and 1985 - are far more
cited than other.
Figure 2. Co-citation map of the 20 most cited articles
DISCUSSION AND CONCLUDING REMARKS
In this paper we sought to review the transaction costs theory albeit
parsimoniously, since a thorough review may be found elsewhere, and
examine links between authors and theories. This endeavor was carried out
examining the papers published in top management journals and using
citation and co-citation analysis. In this manner we complement existing
research, both theoretical and empirical as well as other works that aim at
assessing for instance how the extant research on transactions costs has
been empirical (Macher & Richman, 2008).
According to the transaction costs theory, the transaction costs
emerge because there are limits to human cognition. In sum, although we
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expect people to behave rationally we need to incorporate a bounded
rationally constraint in that expectation due namely to the difficulties in
gathering and processing information that hinder on how individuals
actually behave. The extant research has agreed on three main sources of
transaction costs. The limited capacity of individuals to plan for the future
given the complexity and pace of change of the environment and lack of
knowledge. Uncertainty and incomplete contracts. Moreover, one needs to
attend to the difficulties in enforcing the contracts. As such, the parties to a
transaction are exposed to opportunistic behaviors. To protect, or prevent,
those behaviors, firms seek the best institutional arrangement to minimize
the costs involved in a transaction. The outcome is that firms will seek to
select from the organizational menu, the organizational form that is best
suited to a specific transaction. In some instances, firms will prefer to carry
out the transactions internally and in other instances they will prefer to rely
on the markets. It is important to note that the higher the asset specific
investments required, the more important it will be for firms to control and
coordinate the transaction and the higher the a priori tendency to govern
that transaction. To conclude, transaction costs theory as been often
applied to studies on the boundaries of the firm discussing the rationale for
deciding on such an essential matter as to make or to buy.
Figure 2 and Table 2 may indicate some predominant discussions
around or involving the TCT. Observing the set of papers in table 2 we
identify papers on such disparate issues as strategic alliances and networks
(Ring & Van De Ven, 1992; Parkhe, 1993; Gulati, 1995; Dyer & Singh,
1998), and social networks (Granovetter, 1985), transaction costs theory
per se (Coase, 1937; Walker & Weber, 1984; Williamson, 1975, 1985,
1991), resource based view (Barney, 1991), industrial organization (Porter,
1980), organization theory broadly captured (Thompson, 1967; Pfeffer &
Salancik, 1978; Nelson & Winter, 1982; Granovetter, 1985) and so forth. It
is clear nonetheless, that at least some of the most cited papers are seminal
papers on the TCT, such as Williamson’s (1975, 1985, 1991), Coase’s
(1937) and Alchian, A. & Demsetz (1972),
The most cited works are Williamson’s (1975) paper on ‘Markets and
hierarchies, analysis and antitrust implications’ and his 1985 book on ‘The
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economic institutions of capitalism’. Williamson’s (1991) presents the
effects of uncertainty on the organization of production. The work of Klein,
Crawford and Alchian (1978) is also considered a seminal work on TCT,
looking at the possibility of post-contractual opportunistic behavior as a cost
of using the market system. Coase (1937) is often cited as the basis for the
TCT, as well as Alchian & Demsetz’s (1972) paper on the economic
organizations. It is important to note that some of these papers may be
cited not only for signaling purposes but also for their critic to the theory
itself. In some instances, the critic is based on the need to consider
dynamic aspects as a possibility to reduce transaction costs (Teece, 1990).
That is perhaps the insight in Kogut & Zander (1992). Nonetheless, it is
worth pointing out that scientific knowledge evolves normally (Khun, 1970)
and theoretical progress needs to build on previous work, often contrasting,
criticizing or complementing received knowledge.
As a contribution to Williamson (1985), Parkhe (1993) added that
asset specificity makes exchange partners more committed to the
relationships since the related idiosyncratic investments are likely to lose
their value upon transfer. The TCT is a core theory in all discussions and
theorizing on the boundaries of firms and governance arrangements. As
such it will show up in papers dealing with corporate strategy such as
vertical integration decisions, horizontal and vertical diversification,
acquisitions, and an array of hybrid governance forms that may be
suggested, such as network forms. The TCT is further employed in studies
on the strategic decisions involving the dichotomy make or buy (later
extended to make, buy or ally) and considering production costs, as
proposed by Walker & Weber (1984). Indeed, the make or buy decisions are
a central concern for instance in the Resource Based View (Barney, 1991)
either explicitly or implicitly as firms need to know which resources held are
truly strategic and which they need to develop to better compete in the
future. That may entail, for example, decisions on the degree of vertical
integration or the extent of firm participation in the value chain (Ferreira &
Serra, 2010; Monteverde & Teece, 1982).
A well cited article is Granovetter (1985) where he puts forward the
concept of embeddedness based on the idea that the relations between
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individuals are embedded in social networks and can hardly be thought of in
an abstract, impersonal market. Granovetter’s criticisms to the TCT were
thus founded in the need to include social and cultural factors when
examining organization level phenomena. Specifically one may concur that
social relations between individuals (or firms) may act to, for instance,
reduce transactions costs (Granovetter, 1985). In a complementary view
Zajac & Olsen (1993) argue that it is important to go beyond an analysis of
costs, in particular concerns over cost minimization, and truly evaluate the
value creation of the transactions.
We observe the co-citation of TCT related works with research on
networks, alliances and other hybrid forms of governance. Gulati’s (1995)
research on strategic alliances criticizes TCT for erroneously treating each
transaction independently in inter-firm alliances and for ignoring that by
engaging in repeated alliances with the same partners, inter-firms trust may
emerge diminishing potential opportunistic behaviors and transaction costs.
The work of Ring & Van De Ven (1992) on structuring collaborative
relationships and Parkhe’s (1993) on collaborative strategies proceed in a
similar vein, highlighting the benefits of stable, trustworthy relationships as
relationships considering networks and alliances and resorting to arguments
based on different theoretical streams such as the resource-based view,
industrial organizational and transaction costs. Albeit in the realms of
organization theory, Thompson’s (1967) seminal work on coordination
mechanisms and interdependence of organizations has straightforward
value for this discussion.
Much of the research offers conflicting and complementing arguments,
resorting to different theories in explaining organizational phenomena. The
Resource-based view of the firm, encompasses the work of several scholars,
such as Barney (1991), who has focused on the relative merits of
opportunism versus knowledge coordination as the appropriate theoretical
basis for a theory of the firm (see also Conner & Prahalad, 1996). It seems
reasonable to restate Madhok’s (2002) suggestion that TCT scholars have
focused mainly on the role of efficient governance in explaining firms as
institutions for organizing economic activity. Conversely, the researchers
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taking a RBV have tended to emphasize the role of competitive advantage
(although Coase 1937 anticipated many of the critical issues that RBV
scholars are concerned with today, including the central question of
performance differences among firms) and how firms may accumulate
capabilities and learn (Nelson & Winter, 1982). While TCT has undoubtedly
made important contributions to strategic management theory, particularly
in the realm of economic organization, it is nevertheless only a partial
solution since it provides, at best, a tenuous link with competitive
advantage, arguably the key concern for strategy. According to Madhok
(2002) the theory of the firm (TCT) and the theory of performance
differences between firms (RBV) should be treated as complementary.
The TCT is further cited along research on the Resource Dependency
theory (Pfeffer & Salancik, 1978). The contrast is evident in that the latter
asserts that organizations are dependent on the external environment for
vital resources and that the main goals of the firms are to obtain valuable
resources that are needed to achieve performance goals. The Resource
Dependency theory focuses on inter-organization relationships and the unit
of analysis is a single organization. In contrast, the TCT treats the
transaction as the basic unit and governance structures are selected for
given transactions. On the other hand, TCT scholars argued that Resource
Dependency theory unduly ignored transaction costs and efficiency concerns
(Williamson & Ouchi, 1981).
Porter’s (1980) work is usually used together with TCT in comparing
the relative merits of different theories. While we may position Porter in the
industrial organization group, where the focus is largely on the external
environment, be it the industry or the nation (as in his 1990 work on the
competitive advantage of nations), the contrast to the focus on the
transactions that is postulated by the TCT is clear. In any instance, there is
not an evident path linking both streams of research beyond the usual
contrasting arguments that characterizes the scholarly debate.
Our presentation on the TCT and the links to other scholars and works
is useful in envisioning the current state of the art in the discipline and in
understanding how theories and concepts are interwined in either
contrasting or complementary arguments. It would, nonetheless, be
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interesting to delve deeper into the frequency of such co-citations to
understand better how the TCT is integrated with other organizational
theories.
The conflicting assumptions or/and arguments between theories may
lead to a more constructive understanding of what is also a social
phenomena: firms and individuals interact when they meet in the market. It
seems that the TCT’s assumptions need to be further refined as suggested
by Jones (1998) and Ghoshal and Moran (1996) for clearer empirical tests
to be performed. Perhaps a possible avenue for additional research is
examining the value optimization rather than simply transaction cost
minimization in inter-firm exchanges. Furthermore, several scholars (e.g.,
Jones, 1998; Gulati, 1995, and others) presented the concept of inter-firm
trust that warrants additional research. Lastly, more empirical studies are
expected utilizing all relevant methodologies (Klein & Shelanski, 1994), on
the basis of further clarification on TCT constructs (Williamson, 1994).
To conclude, it is undeniable the merit of the TCT for examining firms’
choices, namely those regarding where to set the boundaries of the firms.
Or, as some scholars put it, choices regarding what they do and whet they
do not. But TCT is “not a flawed transplant from economics but a valuable
addition and refinement to organizational theory that has taken the analysis
of organizational issues and the theory of the firm to a new level of
sophistication” (Jones, 1998: 5). We observed that the influence of TCT is
enormous in the management disciplines and albeit we see that other
concepts and views are emerging – such as the resource-, knowledge-,
capabilities-based view - the TCT will likely maintain its influence in the
discipline.
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Barney, J. 1991. Firm Resources and sustained competitive advantage. Journal of Management, 17(1): 99-120.
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Coase, R. 1937. The nature of the firm. Economica, 4: 386-405.
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Dyer, J. & Singh, H. 1998. The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23(4): 660-679.
Eccles, R. 1987. Review of the economic institutions of capitalism. Administrative Science Quarterly, 4: 602-605.
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Os autores
Rodrigo Martins Mestrando em Administração na UNISUL Business School. E-mail: [email protected]
Fernando Ribeiro Serra Doutor em Engenharia pela PUC-Rio - Pontifícia Universidade Católica do Rio de Janeiro. É Professor da UNISUL – Universidade do Sul de Santa Catarina, Brasil, onde dirige a Unisul Business School e é professor do Mestrado em Administração. Participa no grupo de pesquisa de cenários prospectivos da UNISUL, S3 Studium (Itália) e globADVANTAGE (Portugal). Foi Professor no IBMEC/RJ, PUC-Rio, FGV, Universidade Candido Mendes e UFRRJ. A sua experiência inclui, ainda, cargos de conselheiro (Portugal e Brasil), direcção e consultoria. A sua pesquisa foca a Estratégia e Empreendedorismo. E-mail: [email protected]
Manuel Portugal Ferreira Doutorado em Business Administration pela David Eccles School of Business, da Universidade de Utah, EUA, MBA pela Universidade Católica de Lisboa e Licenciado em Economia pela Universidade de Coimbra, Portugal. É Professor Coordenador no Instituto Politécnico de Leiria, onde dirige o globADVANTAGE – Center of Research in International Business & Strategy do qual é fundador. Professor de Estratégia e Gestão Internacional. A sua investigação centra-se, fundamentalmente, na estratégia de empresas multinacionais, internacionalização e aquisições com foco na visão baseada nos recursos. Co-autor dos livros “Casos de estudo: Usar, estudar e escrever” e “Marketing para empreendedores e pequenas empresas”, pela Lidel. E-mail: [email protected]
Dan Li Professora auxiliar na Kelley School of Business da Universidade de Indiana. Interesses de investigação incluem a gestão de empresas multinacionais, alianças estratégicas internacionais e o processo de internacionalização. Membro do globADVANTAGE. E-mail: [email protected]